Am I paying too much for insurance?

This is an audio transcript of the Money Clinic podcast episode: ‘Am I paying too much for insurance?’

Claer Barrett
Are you the sort of person who likes to take risks in life, or do you prefer to take out insurance policies instead? Today’s guest admits he’s addicted to insurance.

Joss
So it dawned on me recently having a look through my monthly budgets that me and my partner have a number of insurance policies that, when you add it all up, adds up to a reasonable chunk of the budget.

Claer Barrett
We’re talking £50, hundreds of pounds, more than that?

Joss
More than hundreds of pounds.

Claer Barrett
More than hundreds of pounds each?

Joss
Correct.

Claer Barrett
In fact, 31-year-old Joss has been spending thousands of pounds a year on overlapping insurance policies protecting him and his partner from every eventuality. If the worst happens, he doesn’t want to run the risk of being underinsured. But what about the costs of being overinsured?

[MUSIC PLAYING]

Welcome to Money Clinic, the weekly podcast about personal finance and investing from the Financial Times. I’m Claer Barrett, the FT’s consumer editor. On Money Clinic, we typically approach risk from the point of view of investing. But today, we’re going to look at it through the lens of insurance. Today’s guest is happy to pay to protect himself from the prospect of financial disaster.

Joss
I’m Joss. I am 31. I work as an engineer. My partner is a chiropractor. We recently bought our first house.

Claer Barrett
Congratulations!

Joss
Thank you. My whole life I’ve enjoyed mountain biking and skiing, and I enjoy speed. And I certainly don’t wrap my life in cotton wool. I have had accidents, but I would say of being an engineer, I’m very analytical. And I think that’s maybe why I’ve put maybe too much thought into insurance.

Claer Barrett
If it was possible to buy insurance for it, you could bet that Josh had a policy.

Joss
Buildings insurance. Contents insurance. Contents away from home insurance.

Claer Barrett
He even had a policy for boiler cover.

Joss
Car insurance, travel insurance, life insurance, critical illness insurance.

Claer Barrett
OK.

Joss
And I think that covers it.

Claer Barrett
Have you ever had to make a claim on any of these insurance policies?

Joss
Well, I had on windscreens in my car, but that’s it. There’s a lot of insurances and really not very many claims.

Claer Barrett
So how much was all of this costing Joss and his partner? You probably won’t be surprised to learn that Joss is a spreadsheet guy, and I challenged him to tot up the monthly cost of all of these insurance policies.

Joss
Oof! I actually haven’t added that up. That was something I was hoping to do before I came on the podcast, actually, but I didn’t get round to doing it.

Claer Barrett
Well, Joss came back to us and it turned out the couple had been spending nearly £240 a month on insurance for their home, car, boiler, travel and medical cover. That’s nearly 3,000 per year. Joss looked down the list of all of the different policies that he and his partner had taken out and the most expensive were the life cover and critical illness policies that had been sold to them by their mortgage broker when they bought their house three years ago.

Joss
We were sold essentially two life insurance policies each, so one covered half of the mortgage.

Claer Barrett
This is something that’s often called term insurance. So if the worst were to happen to one of you, then your half of the mortgage would be paid off.

Joss
Yeah. So then the second half of the policy was, again, a life insurance to cover another half of the mortgage. This was advice to us. And then critical illness was lumped together with that second policy. And we are young and we eat healthily and we exercise every day. And it sort of felt overkill.

Claer Barrett
But nevertheless, you felt quite pressured to sign up for a stressful time when you were buying a house.

Joss
We did, yeah. It was our first house and you’re dealing with all the paperwork and it felt like something that wasn’t worth arguing about.

Claer Barrett
How did they explain critical illness to you? What did you understand that insurance to cover?

Joss
Essentially what it says on the tin, it kind of explained that if one of us were to get ill and we were no longer able to work and the other partner had to care, he said that he’d seen on multiple occasions how this insurance has helped people out of difficult situations. So it felt a little bit fear-mongering in a way. And it actually transpired when we were looking at changing the life insurance that the mortgage broker earned £1,000 commission per policy. So by selling us two policies each, that’s a £4,000 of commission.

Claer Barrett
Right. And was that made clear to you at the time?

Joss
No.

[MUSIC PLAYING]

Claer Barrett
One of the questions Joss wants to put to the podcast experts is whether this would count as mis-selling and if so, whether he could obtain any redress for this. He’s since cancelled his two policies. As it turns out, he already had life insurance and income protection cover as part of his workplace pension arrangements. A quick primer if you’ve not heard of all of these terms before: life insurance pays out a lump sum to your dependants if you die. Critical illness insurance pays out a lump sum if you get a life-changing illness, for example, cancer or having a stroke. And many critical illness policies also include an element of income protection, which guarantees you a certain level of income for a certain period of time if you cannot work and earn money. Often companies will offer their employees life cover and other insurance benefits as part of their package alongside the company pension. So this is a solitary reminder for all of our listeners to check with HR first before buying any more cover. But Joss and his partner are still out of pocket for insurance that they never needed.

Joss
And that worked out to be £140 a month, which it doesn’t seem like a big number, but it took us about two and a half years to get our act together. And then if you were to be putting that money into stocks and shares, Isa, tracker fund, it does seem like quite a lot of money.

Claer Barrett
You can’t beat yourself up for making a financial mistake, but you can learn from it and move on.

Joss
I was on a fancier work scheme car and that insurance was costing me £700 a year and I went for a premium level insurance on that because I have to return the car with no chips on the windscreen. And that came with zero access on the windscreen cover. So. And the other perk of that was the foreign hire car.

Claer Barrett
Oh yeah.

Joss
That insurance supposedly covered the excess on the hired cars. I do travel fairly regularly and I thought it would be nice to be able to say no, I’m already covered with my own car insurance. However, I later found out that it covered hired cars in the UK, but not foreign use, and I never hired a car in the UK. So again, I have reduced the size of my car and I’ve also reduced my insurance to about £350 a year.

Claer Barrett
No way. So that’s like half.

Joss
Going to regular cover. Yeah. So I have been on a bit of an insurance mission lately.

Claer Barrett
In total, cutting back his level of cover has saved Joss and his partner nearly £100 per month. But now he’s worried this could be a cut too far. Here are his questions for the experts.

Joss
I would like to know which policies are compulsory, which policies are worth having and what level of cover is worth having. And if that’s not clear-cut, if there are any rules of thumb or guidance that you can use to make your own decisions.

Claer Barrett
OK. What else would you like to know?

Joss
I’d also like to know, is there a way to get impartial advice without a commission looming in the background?

Claer Barrett
And anything else you’d like to put to the experts?

Joss
es. Is there any way of knowing if your insurance policies are overlapping?

[MUSIC PLAYING]

Claer Barrett
Our first expert is a voice you will probably recognise. Dean Dunham is the barrister and consumer finance Black Belt. He presents the popular Friday night consumer hour show on LBC radio. Dean, welcome to Money Clinic.

Dean Dunham
Thank you very much. It’s lovely to be on with you.

Claer Barrett
Well, likewise. I’m really excited to hear what you have to say about the world of insurance because it’s an increasingly topical subject of conversation during the cost of living crisis. Insurance premiums are going up. Do you get many people calling up to complain about this on LBC?

Dean Dunham
It’s one of the most common subject areas I have. And you probably know insurance providers don’t like me because I’m always knocking them because there’s a huge amount of consumer detriment in my view, when it comes to insurance-selling. Too many people are sold policies they shouldn’t have or don’t understand. So, Claer, in short, yes, the answer is lots of people get in contact with me about problems of insurance providers.

Claer Barrett
Well, you’ve heard about Joss’s experiences, in particular being persuaded to take out insurance cover by a mortgage broker. Now, on the one hand, that could be a sensible thing to consider. On the other hand, Joss feels like he was coerced into paying far too much.

Dean Dunham
Yeah. Insurance providers must be careful. Whenever you sell anything to a consumer, you must do so in a transparent manner. That consumer must understand fully what they’re getting into. And if we look at Joss’s situation, it appears to me that that was not the case. He didn’t really understand that perhaps there was going to be a commission paid to a broker. That should have been made very clear. Didn’t really understand that perhaps he had this covered elsewhere. So now he’s almost overinsured. So this looks like a case where potentially these policies were mis-sold to him.

Claer Barrett
Hmm. Now, obviously, nearly three years has passed since John took out those policies and he’s since cancelled part of the cover to save money. So, I mean, in situations like this, do you think it’s too late to bring a complaint?

Dean Dunham
Well, it’s not too late. Of course, it’s always best to jump on these things quickly. But I wouldn’t say it’s too late. But certainly he’s got to take action very swiftly now.

Claer Barrett
Mm hmm. And he would do that by complaining in writing to the mortgage broker whom he bought the policy from, setting out why he’s not happy that he didn’t know about the commission, those kinds of things. And then if they can’t resolve it, then he could take it to the financial ombudsman.

Dean Dunham
Correct. I mean, and it’s important that he does go to them first. They will be concerned when they have a customer saying, I was not aware about this commission because they will know that is one of the grounds which the courts time and time again have said, that is a red flag for mis-selling. So he’s just got to lay out the timetable, the chronology of events and really all the things that were said and perhaps not said during the sales process.

Claer Barrett
Hmm. Now, I’m someone who uses all critical illness cover myself in the past, and I did so through my financial adviser. And the first thing he said to me was find out what cover you’ve got through your contract of employment with the Financial Times. So I went off and found out that actually, I did have quite a bit of cover that I didn’t know about. And so he tailored the policy to start from where that ended, which cost me significantly less in terms of the premium per month. And he disclosed upfront that he would be getting a commission and what that would be. So I was happy with that process. But my kind of rule of thumb with these things is never buy the insurance that another company is offering you as an add on. Maybe best to go to somebody independent and you could apply that to like travel insurance when you’re being flashed up flights and holiday deals online or car insurance being upsold by a hire rental company. In all of these cases, if you get the insurance yourself independently, it’s almost always cheaper and probably better cover to.

Dean Dunham
Absolutely correct. Because remember that a third party that is trying to sell you this, they’re doing it because they make money from it. If you go to someone who’s not connected and you say to them, Will you be getting commission from this if I go forward? And they say no, then you know, that’s impartial advice. Claer, there are so many people that are overinsured because they’ve got more than one policy covering the same thing, and that means they’re spending more of their hard-earned cash than they should be.

Claer Barrett
Dean, what would your advice be for people who are listening, who are thinking, Hmm, maybe I do have overlapping cover and I could be saving money. What are the things that they should be doing to check this out?

Dean Dunham
Well, the first thing is the obvious, which is to basically line up all the insurance policies that you have. And remember, you may have some you are not necessarily aware of like packaged bank accounts. Your home insurance may cover you for more than you realise. So unfortunately it is a bit of reading. It’s going looking at the policies you’ve got or perhaps calling them and saying, Can you tell me what am I covered for? And importantly, what am I not covered for? I guarantee many, many people are going to find they are overinsured and they can start cutting some policies. But also the other thing that I tell people is not just enough having an insurance policy, you have to understand the policy. And importantly, you have to understand what does it not cover? What are the exceptions? Claer, that’s the subject that most people call me about. They had a policy, but they just weren’t covered.

Claer Barrett
Give us some examples of that.

Dean Dunham
Well, it’s things like travel insurance where someone’s gone on holiday, they had a pre-existing health issue, they got ill on holiday and the travel insurance company says, well, actually, you knew you had that health issue before. It’s an underlying issue, therefore you’re not covered. Go and have a look at this clause in our policy. Or home insurance, where often people say to me, we were burgled and the insurance companies told us we’re not covered because we didn’t declare that we had three laptops in the house or some expensive jewellery. Most policies have these exclusions, these exceptions. I will say this: our insurance providers must make it very clear to you at the point they sell you the policy what’s included and what’s not. Because under the Consumer Rights Act, which is the applicable law, we call that a key term. Many don’t do that. And if you go back and fight that, often, they’ll cave in or the financial ombudsman will say, Well, actually, Mr Insurer, you didn’t tell Mr Smith about the exception or the exclusion, so that term in your terms and conditions is not binding.

Claer Barrett
So this is why you get all of these funny questions from insurance providers when you’re trying to get a quote for cover, like, does your house have a swimming pool or is it a grade two listed building? And you think, Who do you think I am? Now, the financial regulator, the Financial Conduct Authority, they’re taking a very keen interest in the insurance market at the moment. Why do you think that is, Dean?

Dean Dunham
Well, I think it stems from what we’ve just been saying, because they realise there’s lots of mis-selling going on. People are being sold policies that they do not need and in some cases cannot afford. They realise this is an area of consumer detriment and that’s why they’re looking at it. They’re not doing enough in my view and it’s come way too late. They should have done this a long time ago. One of the interesting things is when you ask the FCA, So what’s the plan? Why are you actually looking at it and what’s the outcome? They won’t give you the answer, which is I find it extraordinary to be honest, because it’s an area where we need them to wade in. We think they are. We don’t know why.

Claer Barrett
Well, some great points there, Dean, which we will feed back to Joss. Thank you very much for joining us today.

Dean Dunham
Thank you very much.

Claer Barrett
I feel we got our money’s worth. [laughter]

Dean Dunham
That’s always good. I didn’t mis-sell you anything.

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Claer Barrett
Next, I turn to Sam Richardson. He’s the deputy editor of Which? Money, the magazine and website of the Consumer Campaign Group. How would you say, Sam, the customers, people who are reading the Which? Money magazine, what are the areas where they could be saving money?

Sam Richardson
So the biggest insurance types where the biggest savings can be made, car insurance, most of all, the home insurance also very big expense most people can’t avoid. Of course, it starts with comparison. Most of us now are so used to using comparison sites. But it’s about using more than one because they’ve got different panels of insurers who may look to you in different ways. Then also looking at other areas where you can tweak your quote such as the excess. Could you increase that? All the add ons you don’t need, types of cover that you don’t need. And once you’ve got those and you’ve got some quotes, you can go back to your current provider and be like, Look, this is what your competitors are offering me. Can you do me a better price? And actually, there’s quite a high success rate for haggling. Although it’s a bit awkward, we really encourage people to pick up the phone.

Claer Barrett
And just talk us through some of the terms that you mentioned there, like the excess on a policy. I mean, that’s something that people might not immediately be aware of, what it actually means, but it’s one way of getting a much cheaper quote.

Sam Richardson
Of course. So when you make a claim, the excess is amount of money that you have to pay. If you make a claim for £500 and your excess is £100, you only get £400 from your insurer because the £100 is being subtracted from it. So excess is something that has to be treated with care. Yes, raising your excess is saying I’ll pay £200 off and £100 will save you money on the premium. But it could come to the point where it’s not worth you claiming. Which raises the question, is it worth being insured at all? So we recommend with excess is think about what you could actually afford to claim, say, if it’s your car insurance, could you actually afford a £200 excess? But would that realistically stop you getting your car repaired and drive you off the road? In which case we’d advise keep the excess low. Find other ways to reduce the premium.

Claer Barrett
Why would you say, Sam, that it’s so important for people to shop around? Because I’ve just had to shop around for my home insurance. It did save me 75 quid. But it did take out an afternoon of my weekend. I think the faff-to-fund ratio, as one of my colleagues put it recently, is not great.

Sam Richardson
Of course, it’s not the best job in the world. And so what I would say is that different insurers see customers in very different ways. Because they may treat customers who live in your area of your age, in your type of house, as particularly risky, whereas another insurer might think, actually they’re not that risky. I can offer them a lower premium. I’ll tell you, this is particularly true if you are seen as complicated by insurers. So you could have a pre-existing medical condition and be looking to get travel insurance or you could have a very unique house. We’ve dealt with people who’ve had heritage listed houses or thatched roofs who’ve had a nightmare getting insurance. Those customers have even more to gain by shopping around. But I would say it’s worth going through that process of entering your details into a comparison site. You know, the savings could be very impressive. You don’t know until you try.

Claer Barrett
One of the biggest problems that Joss has experienced, but I’m sure is common to other listeners, is this duplication of cover. Is that something that bothers Which.

Sam Richardson
Yes. So in cases like Joss’s, what he might find, as well as the cost of having all these insurance policies, is that when he comes to claim, the insurers will dispute between themselves who should actually pay up. This is called contribution clauses. If two insurers both cover the same event, you don’t get double the payout, sadly. Instead, the insurers will agree to divide the claim. So you only have to claim once. But it can mean that the time spent to process to claim is a lot longer by insurers.

Claer Barrett
There are some types of insurance that you absolutely have to have. You can’t drive a car without having motor insurance. In many cases, you can’t get a mortgage unless you’ve got buildings insurance. But then when it comes to life insurance, that sounds a little bit more optional. Is it something you think a young, healthy couple like Joss and his partner really need to be thinking about?

Sam Richardson
Life insurance is most important when you have financial dependants. So for a couple without kids, if the other partner is earning, I would say that life insurance is perhaps not essential because say the worst happen to one partner, the other partner will hopefully be able to say, cover the cost of the mortgage or at least prepare to sell the property so they’re not facing those mortgage costs. When life insurance is more useful, yeah, if you’ve got kids, if you’ve got a partner who’s not working, then it’s worth looking into.

Claer Barrett
Yes, as you say, it very much depends on your circumstances and asking that what if? What if one of us died? What would we do? Could we afford to keep the house? It’s a situation that I’m sure has proved catastrophic for people in the past for the sake of a premium of not very much.

Sam Richardson
Yeah. It may be that you realise in that conversation, you know, we have savings to deal with that sort of eventuality. In which case maybe insurance is not useful. Joss. Yeah, of course it’s a horrendous conversation to have, but it’s worth doing. It will only take two minutes and save a lot of stress potentially further down the line.

Claer Barrett
Are there any other tips that you would give to listeners who are eager to be prepared for the worst but not overpay for it?

Sam Richardson
So start by seeing the cover that you have and ask yourself, When did I last change provider for that cover? If you’ve been with the same insurer for a few years, you might think, you know, I’ll get treated better as a loyal customer, but in reality it doesn’t mean you’re getting the best deal. So there are new rules that are designed to protect loyal customers from paying more than they would as a new customer. It doesn’t mean that your insurance won’t go off each year. The insurers are still allowed to raise your price if their costs have gone up or if they’re seeing you as riskier. So we’d really recommend each year looking at your insurances. Do I still need all of those? Do I know how much this could be costing me if I switched. That little bit of life admin, Yes, it’s a little bit of a faff but can really pay off.

Claer Barrett
Yeah. Particularly if something does go wrong and you’ve got the right cover, then you will not regret spending that afternoon sorting all of this out. Well, thanks ever so much, Sam. It’s great to have you on the show. Where can people go on the Which website to find more about your advice on picking insurers?

Sam Richardson
So it’s which.co.uk/insurance.

Claer Barrett
Excellent. We’ll put a link to that in the show notes too. Well, very useful information for Joss there from our experts which we’ve passed on to him and we’ll let you know if his complaint about mis-selling progresses. But hopefully lots of useful tips there for all listeners out there. Compare the costs of insurance. Prepare to haggle with your existing provider. Read the small print and always think twice before buying insurance as an adult.

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That’s it for Money Clinic with me, Claer Barrett, this week and we hope you like what you’ve heard. If you did, spread the word and leave us a review. We’re always looking to chat with people about their money issues for the show. So if you’re interested in being part of a future episode and looking for some expert advice, then email us. Our address: money@ft.com. You can also take a peek at our website: FT.com/money. Grab a copy of the FT Weekend newspaper or follow me on Instagram. I’m @ClaerB. Money Clinic was produced in London by Persis Love and Laurence Knight. Our sound engineer is Breen Turner and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And finally, our usual disclaimer: the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. That’s all the small print for now. We’ll see you back here next week. Goodbye.